The Lottery: No Chances Taken With Its Security

There was the man who found to his delight that he had purchased a California lottery ticket worth $10,000, and took it to a bar in San Pedro to show off.

“He was so pleased that he passed it all around for everyone to have a look at it,” recalled Hal Diaz, one of the chief investigators for the California Lottery. “Some guy at the other end of the bar grabbed it and ran out the door.”

Then there was another man, Gerald O. Miller, 39, who approached a woman at a shopping mall in La Mirada and offered to sell her what appeared to be a winning $50,000 ticket.

His asking price was $10,000.

Miller said he was offering the cut-rate price because he couldn’t cash the ticket in himself, explaining that he had trouble with the Internal Revenue Service “and the tax people would take it all,” according to Diaz. The woman agreed to meet Miller a few hours later at another mall to complete the transaction, and the ticket turned out to be an expert forgery.

Both these stories had happy endings.

Improbable as it may seem, the man who lost the winning ticket at the bar got it back. The thief who stole it was arrested.

And when Miller arrived at a shopping mall in Placentia to complete the transaction, Diaz said, a man who described himself as the woman’s brother did a little haggling and eventually worked the price down to $39. The woman’s “brother” really was an undercover security agent for the lottery. When Miller turned over the bogus ticket he was arrested. Later he pleaded guilty to attempted grand theft.

Diaz says that the thieves were caught because of an elaborate security system--created by the state and the firm that prints the tickets here in Gilroy--that begins with the pasteboard stock the tickets are printed on and carries through to the “Big Spin” wheel that determines grand prize winners.

The reason for all that security--the protective budget for the lottery is in the neighborhood of $3 million a year--is evident. There is big money in cheating the lottery--$100,000, perhaps even 100 times that much--for someone who can figure out how to beat the system.

There have been at least 400 lottery fraud attempts, ranging from crude “cut-and-paste” forgeries and sophisticated counterfeits of winning instant game tickets to outright robberies.

But lottery officials remain confident that no one has cracked the security screen so far.

“It’s essentially a foolproof system,” said Lew Ritter, a 28-year veteran of the Los Angeles Police Department who is now the lottery’s chief of security.

“With a large enough conspiracy it might be defeated, but that would be extremely difficult,” Ritter said. “You’d have to have a key, inside people at every step, and I don’t see how you could do that. It’s a good system. I’m satisfied with it.”

The system devised by the lottery and Scientific Games Inc. is currently being called upon to safeguard the more than 2 billion scratch-off tickets that the Norcross, Ga., firm will produce for use this year for the California Lottery--tickets that sell for $1 apiece and carry the potential for payoffs as high as $10 million or more.

Industry experts say Scientific Games’ sparkling new 72,000-square-foot Gilroy plant is a model of physical security--employing a force of 18 armed guards who watch the facility around the clock, assisted by 36 television surveillance cameras monitored on 20 screens in a central control room. The company began using the $8-million plant on July 30, after a judge in Georgia untangled part of a legal wrangle between Scientific Games and a printing subcontractor.

Bill Behm, Scientific Games’ vice president in charge of security at the plant, operates under the theory that “We’re printing money here . . . and everyone has his price.”

“You can’t afford to implicitly trust anyone’s integrity,” Behm said.

Employees and visitors are logged in and out and are required to pass through double-locked “mantraps” in which they are electronically screened by metal detectors said to be sensitive enough to detect the aluminum foil on a single lottery ticket. The employees undergo background investigations before they are hired, and each carries an electronically coded access card that limits him to specifically authorized areas. Visitors are escorted at all times.

Security is a factor throughout the manufacturing process, which begins with pasteboard ticket stock that is actually more than just pasteboard. It is mulched paper that is laminated with foil .002 inches thick. “Think of it as Reynolds Wrap on cardboard,” Behm said.

Hidden Symbols

As most California players know by now, the combinations of numbers, words and symbols that determine whether an instant ticket is a winner are obscured by a latex film and can be read only when the purchaser scrapes the film off. The aluminum foil underneath helps assure that these combinations can’t be deciphered before purchase.

“The foil guarantees the opacity,” Behm explained. “You can’t see through it with a bright light. It also stops lasers and X-rays.”

During the first step in the printing process, the foil is coated with a special resin so that it will accept printing ink. Like the formulas for the inks, dyes and sealants used in the printing, the resin’s chemically sensitive composition is a closely guarded secret that a forger would find difficult to duplicate. A laboratory at the plant checks constantly to make sure these formulas check out.

During another step, “security patterns” similar to the filigree on U.S. currency are added to increase the difficulty of erasure or alteration.

Then comes the “imaging” process, during which the varying combinations of numbers, words and symbols that determine whether a ticket is a winner or a loser are printed. At the same time, each ticket is printed with its own verification number--an 11-digit code that is a key element in foiling forgeries.

Random Distribution

The computer that controls the imaging printer is programmed by Scientific Games to distribute the winners at random throughout the approximately 200 million tickets prepared for each game. The computer’s programming tapes--which are kept in double-locked, alarmed vaults to which only a few key employees have access--contain the only record of the verification number of each winning ticket. Checking the tape is the ultimate check for authenticity.

After imaging, a latex film is applied that screens the number-word-symbol combinations and verification numbers from view until the film is scraped off by a purchaser. From this moment on, there is no way to know whether a given ticket is a winner without scratching it.

Each ticket also is printed with a sequential inventory control number, which is probably the lottery’s best theft-protection device. The lottery uses the inventory number to track the tickets as they move from printing plant to retail outlet.

Before they leave the plant, the tickets are recorded by inventory number, shrink-wrapped in packs of 500--the minimum number delivered to each of the 20,000 retailers in the state who sell them--and trucked to the lottery’s warehouses in Sacramento and Whittier, where they are guarded around the clock.

The inventory numbers are recoded again when the tickets move from the warehouse to the contract couriers and again when the couriers deliver them to retailers.

If any tickets are stolen at any time between the printing process and the moment of retail sale, their inventory numbers will be placed on a “missing” list.

Identity of Tickets

Thus, when someone turns in a winning ticket--whether it is a “low tier” winner of $2 or $5, redeemed by retailers, or a “high tier” winner of $50 to $100,000 paid off by the state--a check of the inventory number will show whether it had been stolen.

The man who swiped the ticket in San Pedro apparently didn’t know that. He was tripped up when his story of where he had purchased the ticket didn’t match up with its inventory number.

The man who tried a hijacking in Whittier probably didn’t know it either, although, as it turned out, it really didn’t matter.

The hijacking attempt occurred in June when a courier leaving the Whittier facility got out of a van a few blocks from the warehouse to confer with a supervisor, who had been following him in a car.

Los Angeles County sheriff’s deputies said Manuel Navarez, 37, jumped into the van and, using the keys left in the ignition, drove away. The startled courier and supervisor gave chase in the supervisor’s car, eventually forcing the van off the road and holding Navarez until arresting officers arrived. Navarez is currently awaiting prosecution.

In all, more than 85 people suspected of trying to steal from the lottery have been or are being prosecuted, most of them as a result of investigations by Ritter’s men.

Ritter said that after talking to security chiefs for other lotteries and drawing on their experience, he recruited a force of 58 agents from among more than 1,500 applicants.

Status of Lawmen

He said that these lottery agents, all of whom enjoy peace-officer status, investigate reports of theft and fraud, conduct lottery drawings and provide security in such “supersensitive areas” as the ticket validation room and warehouses, the central computer facilities and Lottery Director Mark Michalko’s executive offices in Sacramento.

Agents check and weigh the Big Spin wheels and other equipment used in drawings regularly, and the vaults in which such equipment is stored are equipped with a variety of alarms sensitive to sound, motion, contact and proximity.

In general, physical security systems at lottery facilities are comparable to those at the Scientific Games plant in Gilroy. And like the employees with Scientific Games, lottery workers in sensitive positions are given background investigations.

Nonetheless, at least two efforts to defraud the lottery have been inside jobs.

Ritter said that shortly after the first ticket was sold last fall, two of the lottery’s contract security officers stole computer hardware and operating manuals in the mistaken belief that they could figure out which were the winning tickets. One of them was heard bragging about his scheme, and within a few weeks, both men were arrested and prosecuted.

In-House Erasure

A few weeks later, in the lottery’s ultra-secure claim-processing room in Sacramento--where validation numbers on tickets sent in for payment are checked against the computer tapes to make sure that they are, in fact, winners--a part-time employee erased the purchaser’s name from the back of a winning ticket and wrote in the name of her cousin, filling out the necessary claim forms. The cousin’s account of where the ticket was purchased didn’t match the inventory number on the back, and the scheme failed.

By far the greatest number of attempts to cheat the lottery have been forgeries--mostly relatively crude efforts in which numbers are sliced from various tickets and glued together in winning combinations.

About 500 such attempts have been discovered thus far--so many that the lottery staged a “sting” operation several months ago, luring questionable claimants in with a “special drawing” in Sacramento that purported to offer prizes including an automobile and a vacation cruise. Sixteen suspects showed up, were arrested and now face prosecution.

Diaz, a veteran U.S. Customs officer before he became one of Ritter’s chief deputies, said that while most “cut-and-paste” forgeries can easily be detected by eye, some are “really good.”

One was so skillfully executed, he said, that “you couldn’t even see it with a microscope.” But Diaz said that, as usual, comparison of the validation number on the ticket with the record of that number on the computer tape revealed the forgery, and thus far, no counterfeit tickets are believed to have gone undetected.

“People are greedy,” he said. “But none of them get away with it.”